State and Feds Probe Oregon Contract with Kitzhaber's Girlfriend

WW has learned from three sources that the Oregon Department of Justice is investigating one or more contracts involving the embattled Oregon Department of Energy and 3EStrategies, a Bend-based renewable energy consulting firm.

The investigation by Attorney General John Kroger's office is potentially fraught with political implications because the CEO of 3EStrategies is Cylvia Hayes, the long-time girlfriend of Democratic gubernatorial nominee John Kitzhaber. Hayes also serves as co-chair of Gov. Ted Kulongoski's Renewable Energy Working Group.

Justice Department spokesman Tony Green declined to comment on the specifics of the investigation or confirm that 3E is a subject of the probe.

“The Oregon Department of Justice is currently investigating potential contracting irregularities at the Oregon Department of Energy in consultation with the U.S. Attorney," Green said late this afternoon. "The department has no comment with respect to the investigation's scope, targets or progress."

Last October, The Bend Bulletinreported that Kitzhaber served on 3E's board. And the Bulletin reported that the company had gotten three state contracts, most recently a $135,000 contract to help the state generate green jobs. 3E's website lists a number of past and current clients but the focus of the DOJ inquiry is believed to be its contract with the Oregon Department of Energy. Although 3E doesn't list the Department of Energy as a client, the company's June newsletter included this bit of information:

3EStrategies is pleased to report that our partner company TEEM (Toward Energy Efficiency Municipalities, LLC) was selected by the Oregon Department of Energy to partner with SAIC-company RW Beck to incorporate smart grid and renewable energy technologies into the state Energy Emergency Response Plan (OEERP).

In this project TEEM will be using our extensive network to develop an inventory of renewable energy and smart grid capacity across the state. We will also be developing a current inventory of sensitive facilities requiring access to electricity during emergencies as well as identifying the key requirements for our state's emergency energy service providers. We will then work with RW Beck to identify strategies for using smart grid, distributed generation and renewable energy technologies to enhance resiliency and flexibility during larger scale electricity outages.

The Department of Energy did not immediately respond to a request for information about its dealings with 3E. The department has been in the media spotlight in the past two years both because of its heavily-tapped tax credit program and for management shortcomings. Earlier this year, WWreported that the Oregon Department of Administrative Services conducted a four-month review of the Department of Energy. Among the concerns raised in the review that concluded in December 2009 were lax contracting practices, including agency employees creating contracts for themselves after they left ODOE and using their agency positions to develop private businesses.

“Past tolerance of poor performance, lack of discipline in the enforcement of state policies and procedures, diffused accountability, and unclear authority and roles may have reinforced inappropriate work behavior in some employees,” the report added.

The governor abruptly terminated Energy Department director Mike Grainey during the 2009 legislative session. And the agency, which has a $260 million biennial budget, has been roiled by turnover since then. Concerns about the 3E contract apparently came to light during a pending state audit.

"Two weeks ago our office was alerted to potential contracting irregularities as part of a broader audit on personnel and business practices at the Oregon Department of Energy that the governor requested in March 2010," Kulongoski spokeswoman Anna Richter Taylor said late this afternoon.

On Aug. 13, at the request of the Department of Justice, Richter Taylor added, the Department of Energy placed three staffers on paid administrative leave pending conclusion of the DOJ investigation. The three are ODOE deputy director Joan Fraser; Shelli Honeywell, manager of a program that distributes federal stimulus funds and Paul Seesing, who works for Honeywell.

Hayes did not immediately respond to multiple messages requesting comment. Kitzhaber's spokeswoman Jillian Schoene said Kitzhaber "is not aware of any investigation."